By Charles Sells
When it comes to the retail value of single-family residential real estate during and after the COVID-19 pandemic, most experts agree that most markets will not likely see cooling home prices any time soon. In fact, many real estate markets are currently posting “full recoveries” – metrically at least – if you compare today’s numbers to a January 2020 baseline. As those recoveries continue, real estate investors are starting to notice some trends popping up. One of them is that housing supply in coastal markets is even tighter than other areas of the country, and it is not only houses on the beach itself or with an ocean view that are going fast.
According to Igor Popov, the chief economist at ApartmentList.com, rental vacancies are actually rising in many metro areas because much of last year’s new multifamily construction is finally nearing completion. Of course, since those developments first broke ground, the American perspective on multifamily residential living has changed dramatically. Many previously happy apartment-dwellers in dense urban areas are now desperately seeking single-family housing options, and that seems unlikely to change.
“It’s becoming clear that COVID-19 is causing a game of musical chairs in the housing market,” Popov told Money.com. “Preferences may be changing, and remote work will make a generation of knowledge workers reconsider where they live.” He concluded that these shifts in housing preferences could “help cool down the hottest, supply-constrained markets and give mid-sized markets a boost.” That is great news for communities both on the coast and in relatively close proximity to coastal metros because these communities are receiving a great deal of interest from households looking to move away from denser, urban areas.
Demand is Forcing Families into Long-Term Renting
Although mortgage interest rates are extremely low at present and many households that are moving outward toward coastal regions are flush with cash from the sale of expensive metro homes, there is a marked shortage of available inventory for purchase. As Susan Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania and co-director of the Penn Institute for Urban Research, observed during the same virtual panel on housing, “Households in this time of COVID-19, who are happy in their homes, are not anxious to trade up. Instead, they are staying put.” Wachter noted that many are refinancing and adding outdoor living options, like decks, to their existing homes.
This means that for many families who do not feel as if time is on their side, they could end up long-term renters in those previously referenced coastal markets. This will not only push rent rates up, it will also create a demand for more single-family rental (SFR) housing in those markets because the households currently renting may well find themselves displaced. For example, in Savannah, Georgia, the renting population consists of many essential workers whose jobs require them to live in the area in order to access work at Georgia’s Port of Savannah, the largest and fastest-growing container terminal in the United States.
Despite the pandemic, the port continued to function this past spring and summer, bringing in a diverse array of cargo to be distributed all over the United States and sending out a massive array of American goods into the world. In fact, during the first half of 2020, the Port of Savannah was the top port for U.S. exports in the country and also received recognition for its work with local army bases. One state senator observed, “They have all the leadership tools they [the base] need to get us through this pandemic. This is an important area because it leverages the relationships they have with the Port of Savannah and to have immediate readiness.” This coastal area is likely the type of place Popov was thinking of when he said some mid-sized markets would get a boost.
Coastal Communities Offer More Than Steady Employment
Many coastal communities are home to a variety of steady jobs, but the national sentiment is also a perfect fit with coastal living at present. Even before COVID-19 created a strong desire in many households to spend more time outdoors, the scientific community acknowledged a variety of seawater-related health benefits. In fact, sea air has higher levels of oxygen, which improves sleep and overall health and wellness, and Health and Place recently published the results of a 26,000-member study that indicated living within about three miles of the coastline is directly associated with better mental health. Combined with decades of international studies that indicate sea water helps the body heal more quickly and that outdoor living tends to improve overall immune function, the research supporting coastal living has never been more compelling than today when much of the population feels trapped inside and worried about catching coronavirus.
With many doctors and scientists seeming to agree that going to the beach is one of the safer activities available to Americans at this time, it is no surprise that demand for homes is spiking, particularly in more affordable areas of the country like the southeast.
“Outdoor transmission is possible but improbable,” said Edward Nardell, an airborne infection specialist at the Harvard T.H. Chan School of Public Health as far back as April. “I can’t imagine you’re in a better place than outside if you’re going to have contact anywhere.”
The World Health Organization (WHO) and the Mayo Clinic also cite swimming pools and beaches as “low- to moderate-risk outdoor activities,” noting that close contact (closer than six feet) is the factor for increased risk, not your presence at the beach itself. “When you’re outside, fresh air is constantly moving, dispersing [any respiratory droplets in your vicinity]. So, you’re less likely to breathe in enough of the respiratory droplets containing the virus that causes COVID-19 to become infected,” the Mayo Clinic staff wrote.
How Long Will the Coastal Boom Last?
Even if an effective, lasting coronavirus vaccine emerges in the next year or two, the demand for coastal living and near-coastal living options is likely to continue – at least in the southeast. As more and more employees and their employers discover remote work is here to stay, more people will begin looking for properties in their ideal locations. Those locations will often be the beach or nearby!
Thanks to those lower volumes of available homes for sale, it seems likely the coastal boom could extend 18 months or even longer even once the infections level off or peter out. Some markets are offering workers in certain sectors additional incentives in hopes of creating new areas of market strength during the pandemic that will further support the local economy far into the future. For example, the Savannah Economic Development Authority (SEDA) has allocated enough funds to offer 50 individuals $2,000 each to cover relocation expenses. SEDA hopes the funds will incentivize remote tech workers to relocate to Savannah permanently.
Trip Tollison, SEDA president and CEO, said, “We know once these technology workers arrive, Savannah – and its diverse offerings and high quality of life – will sell itself.” So far, it certainly seems to be.
Learn more about coastal living, COVID-19, and thriving southeastern real estate markets by contacting Charles Sells at PIPGroup.com.